Massachusetts Health & Accident Insurance Practice Exam

How is the savings in a Flexible Savings Account (FSA) intended to be used?

1. For retirement savings

2. For paying off student loans

3. To pay for medical expenses

4. For purchasing health insurance

The correct answer is: To pay for medical expenses

The savings in a Flexible Spending Account (FSA) is specifically designed to be used for paying for qualified medical expenses. An FSA allows employees to set aside pre-tax dollars from their salary to cover expenses such as copayments, prescription drugs, medical supplies, and other health-related costs. This pre-tax benefit reduces the employee's taxable income, thus providing a financial incentive to manage healthcare expenses effectively. Using FSA funds for medical expenses helps alleviate the burden of out-of-pocket costs associated with healthcare, making it a valuable tool for individuals who anticipate needing medical services throughout the year. The potential to use these funds for various health-related expenditures is the primary purpose of an FSA, distinguishing it from other financial savings options like retirement accounts or loans.